Session #3 Finding Relative Strength/Weakness

Transcription

1 Session #3 Finding Relative Strength/Weakness

2 Legal Disclosure Trading Currencies may involve high risk and, potentially, the loss of any funds invested. Investment information provided may not be appropriate for all investors and is provided without respect to each individual investor s personal financial situation, investing time horizon, risk tolerance or financial sophistication. Trading decisions are up to you, so Maverick Management LLC, Maverick FX Trading and Maverick Trading makes no guarantee or representation as to the outcome of your decisions. Neither Maverick Management LLC, Maverick FX Trading and Maverick Trading, nor any of its respective officers, personnel, representatives, agents or independent contractors are registered investment advisors, registered broker-dealers or licensed financial advisors. We have created this workshop course as part of an investor education program. Nothing contained in this communication (written, verbal and non-verbal) or other materials constitutes a solicitation, endorsement, promotion, persuasion, recommendation, suggestion or offer by Maverick Management LLC, Maverick FX Trading and Maverick Trading or others described above of any particular investment, security or transaction. Maverick Management LLC, Maverick FX Trading and Maverick Trading does not provide investment or financial advice or make investment recommendations. Maverick Management LLC, Maverick FX Trading and Maverick Trading are not in the business of transacting trades.

3 Session #2 Review Forex Market Terminology PIPs, Spreads, Long vs. Short Currency Crosses Dominant Pairs Currency Swaps

4 Session #3 Schedule Time frames Relative Strength/Weakness Determine Strong/Weak News Events Correlations

5 Time Frames One of the most difficult things for traders is to understand the concept of time frame Two traders on opposite sides can both be right or both be wrong

6 Time Frame Example Total PIPs 40 Trader #1 Short Term Long at Sells in 1 hour (4 candles) Trader #2 Short Term Short at Buys in 1 hour (4 candles) Entry Trader #3 Longer Term Long at Sells in 24 hrs (96 candles) Trader #4 Longer Term Short at at Buys in 24 hrs (96 candles) Total PIPs 50

7 Time Frames What time frame do you want to trade? What time frame fits your schedule/lifestyle best? What time frame fits your personality best? Build your trading plan around these answers

8 Time Frames Short Term (scalper) Avg. Holding time 5-60 minutes Intermediate Term (swing trader) Avg. Holding time 1-24 Hours Longer Term (Position Trader) Holding time > 24 hours

9 What time frame is best for you? We don t know the answer Use the trading personality test results Try different trades on the simulator/trading demo Keep records and see which style gave you the best results and was easiest to follow

10 Relative Strength and Weakness

11 Relative Strength & Weakness Relative Strength and Weakness is the theory that you must measure against something to determine strength We will attempt to list all currencies from strongest to weakest or First through Last First step of Forex Trading

12 Major Currencies of the World Currency Name ISO abbreviation Return vs USD Today Euro dollar EUR +.35% Great British Pound GBP -.25% US dollar USD +.00% Swiss franc CHF -.17% Japanese yen JPY +.56% Canadian dollar CAD +.29% New Zealand dollar NZD -.57% Australian dollar AUD -.14% 2 nd 7 th 4 th 6 th 1 st 3 rd 8 th 5 th

13 Relative Strength & Weakness Several Ways to determine Ranking Quotes Charts Relative Strength Calculator Tools Member s Area of website

14 Relative Strength & Weakness Quotes Easiest way is to list all JPY pairs in a group

15 Relative Strength & Weakness Charts Compare Charts against each other

16

17 Relative Strength & Weakness Calculator Located in tools in members area of

18 The Currency Board is where we attempt to list strong and weak currencies each time period

19 Why do we focus on Relative Strength? There are hundreds and hundreds of research studies done on trend following/buying the best performers Studies show you can statistically gain an edge by buying an outperforming asset The weakest assets historically performed the worst going forward

20 Countless research has shown that what has happened in the past has statistical relevance to future performance. Some studies: A Century of Evidence on Trend Following Hurst, Ooi & Pedersen Trend Following Covel Trend Following: Performance, Risk and Correlation Rulle Trend Analysis

21 Momentum Study Jagadeesh & Titman Momentum Study Study Included all stocks traded on the NYSE, NASDAQ and AMEX between Study looked at buying the stocks with the highest returns over the past 6 months and measured the return over the next 6 months

22 Momentum Study Findings were the top performing stocks tended to outperform the overall market by 40 basis points The top 10% of stocks beat the bottom 10% of stocks by 123 basis points The top 10% of stocks were positive 66% of the time over the next 6 months

23 Conclusion/Next Steps Browse and Watch Advanced Concept Videos Relative Strength and Weakness Calculator (49 Min) Continue with Forex 101 and complete the tests Continue the process of building your trading plan Work on Time Frame Question Practice Determining Strength/Weakness Play with Calculator Choose a timeframe (ex: the last 2 days) and determine strongest and weakest